Connecticut $245M GO Bonds Rated `AA' by Fitch IBCA.

NEW YORK--(BUSINESS WIRE)--Oct. 29, 1999--

The State of Connecticut's $245 million general obligation bonds (1999 series B), expected during the week of Nov. 1, through negotiation with a syndicate led by Morgan Stanley Dean Witter, are rated `AA' by Fitch IBCA.

Additionally, the `AA' rating assigned to $6.5 billion outstanding general obligation bonds is affirmed. The new bonds will be due Nov. 1, 2000-19 and will be callable although details are not yet determined.

Connecticut's fundamental wealth and economic resources underlie its high credit quality although debt is and will continue to be high. The economy has recovered slowly from the recession and employment has not yet reached its 1988 peak level, but steady growth has occurred. Financial operations belie the pace of the recovery, reflecting the state's wealth as well as very conservative revenue estimating. For the past five years, actual revenues have far exceeded expectations, leading to large surpluses, which have been used for a variety of purposes, including full funding of the budget reserve, debt reduction, tax relief and various one-time expenditures.

Connecticut closed the fiscal year ending June 30, 1999, with a surplus of more than $600 million, due largely to the strong performance of the personal income tax, first levied in 1991. Gross collections of that tax alone were more than $400 million above original estimates. All but $71 million of the surplus was appropriated, largely for one-time purposes including sales tax rebates, pre-funding of a 27th payroll (occurring infrequently), school construction and Year 2000 expenses. The budget for the current biennium is in balance. While revenues appear to be conservatively estimated and for 1999-2000 have already been upwardly revised somewhat, expenditures have risen, mostly due to non-realization of savings through a vendor program. Surplus has been reduced from $64 million to $13 million; the budget for 2000-01 expects to generate surplus of $4.8 million.

Steady, moderate economic growth is continuing. In 1998, employment rose 2%, bringing the total to over 98% of the pre-recession peak level and gains this year are in the 1% range. The unemployment rate is again lower than that for the nation. Personal income growth, which lagged the nation in the early 1990s is stronger now, with annual gains near or above those of the U.S. On a per capita basis, the state has outperformed the nation for four consecutive years and, by this measure, it continues to rank first among the states.

After the sale, net tax-supported debt will amount to $10.1 billion, or $3,074 per capita and 8.2% of personal income. While these are high levels, amortization of general obligation bonds (about two-thirds of debt) is rapid. Debt can be expected to remain high as the transportation program continues and some $2 billion general obligation bonds were authorized this year. The state has, however, been using part of surplus for debt retirement and about $140 million bonds will be cash defeased by year-end.